Go Digit General Insurance Limited — Q3 FY25 earnings call

Call held 22 Jan 2025

Management summary

Go Digit delivered a strong Q3 FY25 performance characterized by significant PAT growth and market-leading GWP expansion. Management successfully navigated the transition to 1/n accounting, which impacted optics but not underlying profitability. The company continues to prioritize 'core insurance profitability' by maintaining pricing discipline in the competitive group health segment and optimizing its motor portfolio mix.

Highlights

  • Profit After Tax (PAT) surged to ₹119 crores in Q3 FY25, compared to ₹43 crores in Q3 FY24.

  • Gross Written Premium (GWP) for 9M FY25 reached ₹7,706 crores, representing 15% growth vs industry growth of 8%.

  • Combined Ratio improved to 108.1% from 110.3% in the previous quarter; on a like-to-like basis (adjusting for 1/n accounting), improvement was ~3%.

  • Loss Ratio improved to 72.9% in Q3 FY25 from 74.5% in Q2 FY25.

  • Assets Under Management (AUM) grew by ₹3,200 crores YTD to approximately ₹19,000 crores.

  • Solvency Ratio remains strong at 2.22 (222%), well above the regulatory requirement.

  • Motor TP premium share reduced to 61% from ~78% five years ago, as the company shifts toward Motor OD (39%).

  • Net worth under IGAAP has crossed the ₹3,900 crore mark.

Concerns

  • Motor TP Inflation

Key financials

3 periods

Headline

  • Combined Ratio
    108.1%
    QoQ -2%
  • Solvency Ratio
    2.22
  • Loss Ratio
    72.9%
    QoQ -2.1%
  • AUM
    ₹19,000 Cr

Q3

  • Profit After Tax
    ₹119 Cr
    YoY +176%

9M

  • Gross Written Premium
    ₹7,706 Cr
    YoY +15%

What they filed

Q1 FY27: revenue up 8.5%, net profit down 37.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,234 2,436 2,594 2,236 2,488 +11%2,570 +6%2,711 +5%2,427 +9%
EBITDA89 118 -209 159 135 +52%162 +37%-297 −42%114 −28%
Net profit89 119 116 138 117 +31%140 +18%149 +28%86 −38%
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
    61% TP Premium Share39% OD Premium Share70% Private Car OD Mix
  • Health
    -0.01 directional Employer-Employee Growth0.1 directional Non-Employer-Employee Growth

Guidance & targets

Other

  • TP Reserve Release Other · FY25 · Medium confidence ₹510-520 crores

    Previously ₹577 crores → ₹510-520 crores

    my personal best guess is that if last year was INR577 crores we would be in a plus minus 5% range in this... we could be somewhere around, say, 510, 520.

    — Kamesh Goyal, Chairman

  • Equity Asset Allocation Other · Medium Term · High confidence 10%
    We are very comfortable to go up to 10% of our asset allocation in equity.

    — Kamesh Goyal, Chairman

Risks & concerns

  • Motor TP Inflation

    high

    Management notes that 50% of the industry TP book needs a price hike due to 4 years of stagnant tariffs vs rising inflation.

    Management acknowledged

  • Intense Competition in Group Health

    medium

    Pricing in the employer-employee segment remains 'irrational,' leading Digit to degrow this specific sub-segment.

    Both acknowledged

  • 1/n Accounting Optics

    low

    The new accounting method reduces the denominator for combined ratio calculations, making the ratio appear higher/worse than it is.

    Management acknowledged

Areas of evasion (1)

  • Specific loss ratios for sub-segments of group health (SME vs Large Corporate).

Q&A highlights

3 direct
Impact of 1/n Accounting on Combined Ratio Direct
Indian accounting now is becoming even more from a combined ratio perspective misleading... in our case, though we have shown the premium of about INR60 crores which has moved to next year, the commission on that which is roughly about INR19 crores or so, we have actually provided that in Q3 already.

Explains why the reported combined ratio looks worse than the actual economic performance due to upfronting of commissions on deferred premiums.

Asked by Kunal Thanvi

Motor Third Party (TP) Pricing and Inflation Direct
There is about half -- roughly half book of TP of the industry which needs price increase because there is TP inflation and for the last 4 years, there has not been any increase in TP business.

Highlights a systemic risk in the motor insurance sector where pricing hasn't kept pace with inflation, justifying Digit's cautious stance on TP growth.

Asked by Sanketh Godha

Reserve Release Volatility Direct
Unlike last year where we saw quarter-on-quarter volatility on reserve release, now we have a very decent experience of 5 years, 6 years... So we will see lesser volatility.

Assures investors that the 'lumpy' reserve releases seen in FY24 are unlikely to repeat, leading to more predictable earnings.

Asked by Sanketh Godha

2 min read 5 chapters

Detailed narrative

Accounting Transition Distorts Combined Ratio

Management spent significant time explaining the transition to 1/n accounting, which began on October 1st. This change moved approximately ₹60 crores of premium to future periods, effectively reducing the denominator for the combined ratio. While the reported ratio was 108.1%, management noted that on a like-to-like basis with Q3 FY24, the ratio would have been 107.2%, representing a 3% improvement. Crucially, Digit is booking commissions upfront (₹19 crores in Q3) for these deferred premiums, which creates a temporary drag on reported margins that will normalize as premiums are recognized.

Strategic Pivot in Motor Portfolio

Digit continues to aggressively rebalance its motor portfolio away from Third Party (TP) insurance toward Own Damage (OD). TP now accounts for 61% of the motor mix, down from 78% five years ago, while OD has risen to 39%. This shift is driven by the lack of tariff hikes in the regulated TP segment over the last four years despite persistent inflation. Management believes 50% of the industry's TP book is currently underpriced, justifying their decision to grow OD at a faster rate.

Pricing Discipline in Health Insurance

The company is intentionally degrowing its Employer-Employee group health business due to 'intense price competition' that management deems unsustainable. Instead, they are focusing on the non-employer-employee segment where growth is higher and pricing is more rational. This discipline is reflected in the improved loss ratios, as management stated they would rather lose volume than write business at a higher loss ratio that would erode overall profits.

Predictable Reserve Releases

A key highlight was the stabilization of reserve releases. After a volatile FY24, Digit has released ₹336 crores in TP reserves over the first nine months of FY25. Management expects the total for the full year to be in the range of ₹510-520 crores, compared to ₹577 crores last year. They emphasized that with 5-6 years of data now available, the 'lumpiness' of reserve releases should decrease, providing more consistent quarterly earnings.

Strong Solvency and Investment Leverage

Digit maintains a high solvency ratio of 2.22, providing significant headroom for growth without the need for immediate capital infusion. The company's business model continues to benefit from high investment leverage (4.8x), which amplifies the impact of investment income on ROE. Management is also gradually increasing its equity exposure, which rose by 0.5% this quarter, with a long-term comfort level of up to 10% of AUM.

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