Chola MS registers robust growth

It isn’t a sprint. Insurance business is like a marathon. It requires enormous patience. Perseverance is the key. Well, this one has it in plenty. As many as 20 summers have gone by since it came into being in 2002. This joint venture is steadfastly focussed on Three ‘Ts’ (Trust, Transparency and Technology). This ‘3T’ focus appears to have kept Cholamandalam MS General Insurance Co (Chola MS) in good stead all along. For the 60:40 joint venture between the Chennai-based Murugappa group and Mitsui Sumitomo of Japan 2022-23 was a momentous year. If one were to go by the numbers, the year was indeed a good augury for Chola MS.  

The capital profile of the insurance JV has improved over the last two-three years, with a solvency ratio of 2.01x as on 31 March 2022 from the low of 1.58x as on 31 March 2020.  The minimum regulatory requirement of solvency ratio is 1.5x. The ratio gives a clue or two to the ability of a company to meet its long-term debts and financial obligations. Solvency can be an important measure of financial health, since it’s one way of demonstrating a company’s ability to manage its operations into the foreseeable future.

“The improvement in the solvency was partly due to lower GDPI (gross direct premium income) and lower claims in 2020-21 and 2021-22 with the impact of the Covid-19 pandemic,” says rating agency ICRA, in a recent report on Chola MS. “Further, despite the higher growth, the solvency improved due to the reduction in some of the disallowances in the available solvency margin”. Given this, ICRA does not expect any incremental capital requirement for Chola MS in the medium-term for achieving the projected business growth. Should there be any need, the parents, who have a strong pedigree, will have little difficulty in stepping in with the support. The JV has so far chosen to plough back all the profits into the business rather than rewarding the parents with dividends.

At about Rs6,200 crore, the gross written premium (GWP) of Chola MS has grown by 27.6 per cent in 2022-23 – well above the industry growth of 16.2 per cent.  Chola MS has about 33.6 million active customers. In 2020-21, it sold 12.1 million policies.  On the critical financial parameters, the JV has turned out robust numbers. The PBT (profit before tax) had risen to Rs264 crore in 2022-23 – up from Rs106 crore in 2021-22. And, the net worth stands at Rs2,160 crore at the end of March 2023. The investment corpus has risen to Rs14,715 crore. 

Chola MS claims that it has a market share of 2.87 per cent among the multi-line insurance players. “We will continue to grow ahead of the industry in 2023-24 to step up our share,” affirms V. Suryanarayanan, managing director, Chola MS.

Significantly enough, the Chennai-based insurer has grown robustly across segments, when compared to the industry as a whole. It grew by 33.4 per cent in fire, 26.8 per cent in motor, 36.7 per cent in health, 20.9 per cent in other commercial lines and 16.7 per cent in personal accidents during 2022-23. “We have seen growth on all fronts,” the MD acknowledges. What is gratifying to the management is the fact that the JV has also out-performed the industry’s growth.

Since 2019-20, Chola MS has gone in for a subtle shift in its product portfolio. The dominance of motor insurance, however, still continues. But, its share in the overall business mix has slipped to 70.6 per cent in 2022-23, from 73.8 per cent in 2019-20. The commercial portfolio has grown from 10.9 per cent in 2019-20 to 13.6 per cent in 2022-23, while the health segment has fallen to 7.2 per cent in 2019-20 from 9.5 per cent in 2022-23.

Strategised diversification

Motor insurance is by far the largest component of the general insurance space. Chola MS has a market share of 5.3 per cent in this space. The play in this space is undergoing a significant metamorphosis for Chola MS. In 2019-20, commercial vehicles dominated the motor insurance space for the JV with a share of just above 75 per cent. 

In 2022-23, commercial vehicles formed 44.6 per cent of the motor insurance business for the company, with passenger vehicles and two-wheelers becoming growing segments in the motor insurance space for Chola MS, with a share of 35.9 per cent and 19.6 per cent respectively in 2022-23. This indeed signals a strategised diversification across the motor insurance ecosystem.

A couple of things appear to signify the strength of the insurance joint venture. For one, it is heavily retail-focussed. Nearly 85 per cent of its business comes from retail. Secondly, it is not shy of leveraging its Indian parent to garner business. Nearly one-third of its business is through the captive route.

The insurance business is tricky, to say the least. In a largely regulated ecosystem as it is prevailing in India, the premium income that an insurer collects will not suffice to turn it into a profitable business. The net profitability of the company is largely supported by investment income. “Given the recent revision in the regulatory guidelines for expenses, the company plans to reduce its expense ratio to the specified regulatory level of 30 per cent in the next three-year timeframe,” the ICRA report says.

“This will be supported by the changes in the product mix as Chola MS plans to re-enter certain bulk business segments, like the crop segment, and increase the share of commercial business, which has a lower acquisition cost. The impact of this regulatory change on profitability will remain a key monitorable”.

Within motors, the company has diversified into two-wheelers and private cars. Within commercial vehicles (CVs), Chola MS has increased the share of insurance business from lower tonnage CVs (3,500 cc CV plying within town limits) and businesses such as construction equipment, tractor and school buses. They typically have lower loss ratios. With competition intensifying, its ability to grow its market share in other segments and improve its profitability will come under tough test.

As it plays the game of patience, Chola MS has gone to adopt a multipronged strategy to solidify its physical presence across geographies through alliances of assorted sort. Also, it has chosen to quickly embrace technology and newer digital tools to not only speed up its services to customers and also to beef up damage assessment mechanisms.

All these, according to Suryanarayanan, are primarily aimed at guiding Chola MS into profitable growth. With the dynamics of the business set to undergo sea change in the wake of likely easing of certain policy restrictions, Chola MS is keen on fortifying its strength to emerge as a sustainable player in the field.