Go Digit General Insurance Limited — Q4 FY24 earnings call

Call held 14 Jun 2024

Management summary

Go Digit reported a strong year of growth with GWP crossing the ₹9,000 crore milestone and a significant doubling of Q4 profits. The company is maintaining a high retention strategy and leveraging digital-first distribution, with 51% of policies issued via APIs. While property losses and NAT CAT events slightly pressured the combined ratio, management remains focused on disciplined underwriting, evidenced by their decision to de-grow the Motor Third Party segment in Q4 due to unattractive margins.

Highlights

  • Gross Written Premium (GWP) crossed ₹9,000 crores in FY24, representing a 25% YoY growth.

  • Full-year profit after tax (PAT) stood at ₹182 crores; Q4 PAT doubled YoY to ₹53 crores.

  • Premium retention ratio reached 85.8% in FY24, which management believes is among the highest in the industry.

  • Combined ratio for FY24 was 108.7%, up approximately 100bps YoY due to property and NAT CAT losses.

  • Assets Under Management (AUM) grew to ₹15,700 crores as of March 31, 2024.

  • Investment income crossed ₹1,000 crores with a yield of approximately 7.3%, up 100bps YoY.

  • Solvency ratio stood at 1.61 as of March 31, 2024, expected to exceed 2.00 post-IPO capital infusion.

Concerns

  • Motor Third Party Inflation

Key financials

  1. Gross Written Premium ₹9,000 Cr +25%YoY
  2. Profit After Tax ₹182 Cr
  3. Combined Ratio 108.7%
  4. Solvency Ratio 1.61
  5. Investment Income ₹1,000 Cr
  6. Retention Ratio 85.8%

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 Own Damage
    22% GWP Mix42% Growth vs Industry
  • Motor Third Party
    39% GWP Mix-11% Q4 Growth
  • Health, Travel & PA
    19% GWP Mix₹60 Cr Retail Health GWP
  • Fire
    19% Growth vs Industry

Guidance & targets

Other

  • Solvency Ratio Other · by June 30, 2024 · High confidence > 200%

    From 161% today

    our sense is this will be more than 200%. What exactly that number would be that we will know only on 30th of June, but we expect the solvency ratio to go beyond 200% definitely.

    — Kamesh Goyal, Chairman

Margin

  • Combined Ratio Trajectory Margin · Future · Low confidence No specific guidance
    One is that we actually don't have any guidance on this. We as a company as I tried to explain earlier, we basically don't think there is an ideal LOB mix which one wants to look at.

    — Kamesh Goyal, Chairman

Risks & concerns

  • Motor Third Party Inflation

    high

    Third-party inflation and minimum wage increases have made the segment economically unattractive without premium rate hikes.

    Management acknowledged

  • NAT CAT and Large Property Losses

    medium

    Impact of ~₹70 crores from four major events and one large loss in property/engineering segments, affecting the combined ratio by 1%.

    Management acknowledged

  • Health Insurance Stress

    medium

    Retail health faces pressure from high first-year commissions and portability (50% of new industry business), while group health remains loss-making.

    Both acknowledged

Areas of evasion (2)

  • Specific combined ratio targets
  • Detailed digital vs. offline combined ratio comparisons

Q&A highlights

2 direct
Health Segment Profitability and Mix Direct
Retail health insurance would be a smaller number... close to about INR60 crores or so for last year. Group health, as you rightly said, is loss-making. But this is too big a segment for us to stay away.

Reveals that the company's health portfolio is heavily skewed toward group business, which is currently loss-making but used for data gathering.

Asked by Bhavesh Jain

Motor Third Party (TP) De-growth Direct
We actually degrew a third-party book in quarter 4... we decided to take the corrective action and also try to find some segments where we can now try and gain some growth in the TP segment.

Highlights management's willingness to sacrifice growth for profitability in segments where margins are unattractive due to inflation and competition.

Asked by Prayesh Jain

Investment Leverage and Asset Allocation Partial
Leverage obviously will go down this year because we have raised capital of about INR1125 crores... our equity allocation has continued to be lower. It's only 1.6%.

Explains the impact of the IPO on capital ratios and the company's conservative stance on equity investments to protect solvency.

Asked by Dipanjan Ghosh

2 min read 5 chapters

Detailed narrative

Strategic Pivot in Motor Portfolio

Go Digit significantly shifted its motor mix in FY24, with Motor Own Damage (OD) increasing from 16% to 22% of the GWP mix. Conversely, Motor Third Party (TP) reduced from 46% to 39%. In Q4 FY24, the company intentionally de-grew its TP book by 11% as a 'corrective action' against unattractive margins caused by third-party inflation and stagnant premium rates. This demonstrates a disciplined approach to underwriting over pure volume growth.

Property Losses and Combined Ratio Impact

The combined ratio for FY24 rose to 108.7%, up from 107.8% in the previous year. This was primarily driven by ₹70 crores in losses from four major NAT CAT events and one large property loss. Despite these hits, management noted that because their net earned premium is nearly ₹7,000 crores, the overall impact on the loss ratio was limited to 1%, showcasing the benefit of their scale and high retention strategy.

Health Segment: Group vs. Retail Dynamics

The health segment grew to 19% of the GWP mix, but management revealed that retail health remains a very small portion at approximately ₹60 crores. The bulk of the portfolio is group health, which management admits is industry-wide loss-making. However, they view it as a critical segment for data gathering and market presence, intending to monitor loss ratios on a quarter-by-quarter basis as the business matures.

Capital Position and Solvency Post-IPO

As of March 31, 2024, the solvency ratio was 1.61, down from 1.78 YoY. However, this figure does not include the ₹1,125 crores raised during the May 2024 IPO. Management expressed high confidence that the solvency ratio will exceed 200% by the end of June 2024. This strengthened capital base is expected to lower investment leverage in the short term but provide a significant buffer for future organic growth.

Digital Integration and API Leadership

Go Digit continues to emphasize its technology-first approach, with 51% of all policies now issued through API integrations. The number of APIs has nearly doubled over the last two years. This digital infrastructure is central to their strategy for onboarding and servicing policies, allowing them to remain 'channel agnostic' while maintaining low manual policy issuance rates.

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