Detailed Rationale

CRISIL Ratings has assigned its ‘CCR A+/Stable’ rating on the corporate credit rating of Go Digit General Insurance Limited (GoDigit). The rating centrally factors in the strategic importance of GoDigit to, and expectation of continued financial support from its ultimate co-promoter, Fairfax Financial Holdings Ltd (Fairfax, rated ‘BBB/Stable’ by S&P Global Ratings [S&P Global]), both on an ongoing basis and in the event of distress. Fairfax has been its key stakeholder and demonstrated need-based capital support to GoDigit. Currently, Go Digit Infoworks Services Pvt Ltd (GDISPL), a joint venture between Fairfax and Mr Kamesh Goyal holds 83.65% stake in GoDigit while the balance is held by private equity funds. At GDISPL level, Fairfax (through FAL Corporation) and Mr. Kamesh Goyal (along with his entity – Oben Ventures LLP) hold 45.25% and 54.75% equity stake in GDISPL, respectively. Additionally, FAL Corporation holds compulsorily convertible preference shares (CCPS) issued by GDISPL with fixed conversion ratio. Upon conversion of the CCPS, the shareholding of FAL Corp will represent maximum of up to 82.07% of the share capital of GDISPL. Further, consequent to conversion of the CCPS, the indirect shareholding of FAL Corp in GoDigit (on a fully diluted basis) will be a maximum of up to 68.65%. Insurance regulations currently specify a ceiling of 74% on foreign shareholding which applies to Fairfax and a few other existing investors of GoDigit. Consequently, Fairfax can increase its stake up to ~71.5% in GoDigit (direct or/and direct) which provides the former adequate headroom to infuse further capital into GoDigit, if there is any exigency. Fairfax can either infuse capital into GoDigit through GDISPL or directly – subject to regulatory approvals and consent of the other Joint Venture partners.

 

The rating is also driven by the company’s growing market presence, adequate risk management systems and practices, and adequate capital position backed by regular capital infusion from the investors. These strengths are partially offset by the company’s modest, though stabilizing underwriting performance and weak profitability.

 

Having commenced operations in fiscal 2017, GoDigit has grown at a robust 3-year CAGR of 74% to attain a market share of 2.1% (based on gross direct premium written in India during fiscal 2022). Against an industrial growth of 11% over fiscal 2022, the company’s gross direct premium, which was relatively small in fiscal 2021, grew at 93% driven by the company’s expanding operational network and digitally inclined business model. Motor, which remains the largest portfolio in the company’s premium base, forms 64% of the company’s total premiums for fiscal 2022.

 

Despite the Covid-19 related disruption, the company’s claims ratios have remained compared with those of established players. For fiscal 2022, GoDigit reported a claims ratio of 74% with negligible impact of Covid-19 claims. However, given the company is in its growth phase – the expense ratio has remained high at upwards of 35% since inception and for fiscal 2022, it was 39%. Combined ratio at 113% for fiscal 2022 reflects scope of improvement in the underwriting performance. For Q1 2023, the company’s claims ratio stood at 73% whereas its expense ratio was at 34% - aggregating to a combined ratio of 108% for the quarter, flat in comparison to that for corresponding quarter of previous fiscal.

 

Overall financial position is supported by adequate capitalization which has remained contingent to regular equity infusion from investors since the company’s inception. Thus far, the company has raised Rs 2806 crore of capital and plans to raise another Rs 1250 crore over the next 2-3 years to support its growth plans. Solvency ratio, buffered by the last round of capital infusion, stood at 2.01 times and 2.18 times as on March 31, 2022 and June 30, 2022, respectively

 

Overall profitability remains weak, evidenced by a loss of Rs 296 crore for fiscal 2022 and the fact that the company is yet to break even. For Q1 2023, the company reported a profit of Rs 23 crore as compared to a profit of Rs 25 crore for the first quarter of the previous fiscal.

Analytical Approach

For arriving at the corporate credit rating, CRISIL Ratings has evaluated the business and financial risk profile of GoDigit and the standalone rating thus arrived at, has been notched up for the support received from the co-promoter – Fairfax Financial Holdings Ltd (rated ‘BBB/Stable’ by S&P Global) – on an on-going basis and in the event of distress.

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance to, and expectation of strong financial support from, Fairfax

GoDigit is strategically important to Fairfax. and derives operational and financial support from it. Fairfax exercises oversight on GoDigit’s operations through periodic performance reviews however, the leadership of the company operates autonomously and the involvement of Fairfax in the day-to-day operations of the company is low. Currently, GDISPL, a joint venture between Fairfax and Mr Kamesh Goyal holds 83.65% stake in GoDigit while the balance is held by private equity funds. There is one representative director from Fairfax on the board of GDISPL and GoDigit. Since GoDigit’s inception in 2016, Fairfax has been its key stakeholder and demonstrated need-based capital support to the former. At GDISPL level, Fairfax (through FAL Corporation) and Mr. Kamesh Goyal (along with his entity – Oben Ventures Pvt Ltd) hold 45.25% and 54.75% equity stake in GDISPL, respectively. Additionally, FAL Corporation holds compulsorily convertible preference shares (CCPS) issued by GDISPL with fixed conversion ratio. Upon conversion of the CCPS, the shareholding of FAL Corp will represent maximum of up to 82.07% of the share capital of GDISPL. Further, consequent to conversion of the CCPS, the indirect shareholding of FAL Corp in GoDigit (on a fully diluted basis) will be a maximum of up to 68.65%.

 

CRISIL Ratings also notes that the joint venture agreement provides that in the event GoDigit requires additional capital and GDISPL is not able to contribute towards such requirement, then Kamesh Goyal group and Fairfax may jointly agree to subscribe to equity shares in GDISPL in proportion to their respective shareholding. And in the event - Kamesh Goyal group is unable to fund its pro-rata share of capital called by GDISPL, then Fairfax will have the right, exercisable in its sole discretion, to subscribe to such number of compulsorily convertible preference shares (CCPS) as Fairfax may decide.

 

Insurance regulations currently specify a ceiling of 74% on foreign shareholding which applies to Fairfax and a few other existing investors of GoDigit. Consequently, Fairfax can increase its stake up to ~72% in GoDigit (direct or/and direct) which provides the former adequate headroom to infuse further capital into GoDigit, if there is any exigency. Fairfax can either infuse capital into GoDigit through GDISPL or directly – subject to regulatory approvals and consent of the other Joint Venture partners. CRISIL Ratings has also noted that Fairfax is in the process of infusing additional capital into GoDigit via compulsorily convertible preference shares (CCPS) and, the receipt of regulatory approval for the same would remain a monitorable.

 

Over the near to medium term, Fairfax is expected to retain significant stake (directly and/or indirectly) in the company and remain a critical shareholder with representation on the board and management oversight.

 

GoDigit’s strategic importance to Fairfax is underpinned by the former's growing market presence among private sector non-life insurance companies in India and expectation of gradual improvement in its market share and overall profitability over the medium term. Further, Fairfax’s presence in India through GoDigit – enhances its market position in the Indian market and adds diversity to the bouquet of insurance product offerings.

 

• Growing market presence supported by the company’s digitally driven business model, portfolio diversity remains an area of improvement

Within the first 5 years of its operations, GoDigit has attained a market share of 2.1% based on gross direct premium written in fiscal 2022 – clocking a 3-year CAGR of 74%. The company’s business model is based on leveraging the digital infrastructure to provide a faster and more seamless insurance service to customers. Because of this remote operational model – over 60% of the company’s insurance premium flows in from tier II and III cities and the majority of the portfolio is retail. For fiscal 2022, gross premiums written by GoDigit amounted to Rs 5268 crore, making it the fastest general insurance company to cross the Rs 5000 crore benchmark from its inception, in terms of gross premium written. In terms of portfolio concentration, motor insurance remains the largest segment for GoDigit - accounting for 64% of the gross premium written during fiscal 2022 followed by liability insurance which constituted 12% of the total premium base. While the premium mix remains concentrated within the motor segment, its share has declined from ~95% in fiscal 2019. Over the medium term, the company’s healthy growth rate is expected to sustain alongside gradual diversification into fire and liability segments though motor would remain dominant forming over 60% of the company’s premium base.

 

• Adequate risk management systems

With its focus on making insurance simple for its customers, GoDigit has taken many steps to streamline its entire underwriting process such that the operation time for all process relating to customer on-boarding, policy issuance, claim assessment and settlement of small ticket claims is significantly reduced. By leveraging its digital infrastructure and extending the interface to its stakeholders, the company has expanded its operational network to tier II and III cities such that over 60% of its premiums are contributed by customers residing in these locations. The company has stationed its sales team across 165 cities and has a team of 265 in-house service engineers. The company also has tie ups with652 lawyers, 363 investigators. Its network also covers 729 surveyors and over 9800 workshops. Also, all of the employees at GoDigit are employed on an on-roll basis. With regards to claims settlement – the stage where probability of conflict and delays in settlement is highest – the company ensures efficiency through online due diligence and assessment of the accident and damage, for small ticket claims and endeavours to settle most of these at the earliest. For larger ticket exposures in segments like fire and property, physical verification is done. The adequacy of GoDigit’s risk management systems is also reflected in the company claims ratio which, at 74% for fiscal 2022 and 73% for the first quarter of fiscal 2023, remains at par with that for established players.

 

• Adequate capital position supported by frequent capital infusions

The company’s capitalisation has remained adequate in relation to its scale and nature of operations, primarily supported by its track record of frequently raising capital from existing and new investors. Considering the company is yet to break even, its networth has been funded by frequent capital raises. Since inception, the company has cumulatively raised over Rs 3200 crore as capital as a result of which – its networth as on June 30, 2022 stood at Rs 2336 crore corresponding to a solvency ratio of 2.18 times on the same date. Over the medium term, the company plans to raise further capital to the tune of Rs 1250 crore from newer investors to support its growth plans. Presence of high pedigree investors like Fairfax Financial Group, Siquoia would continue to be a strength for GoDigit’s capitalisation however, on a steady state basis – the company’s ability to improve its profitability and sustain its networth through internal accruals remains critical and a key rating sensitivity factor.

 

Weaknesses:

• Modest earnings profile

Given the company is in its growth phase, it is yet to break even which makes its earnings profile modest. While its investment income has started to increase with scale and is expected to support the company’s overall profitability in the long run, it is still not sufficient to offset the underwriting deficits. For fiscal 2022, the company reported an underwriting deficit of Rs 730 crore which, after adjusting for an investment income of Rs 437 crore for the period, yielded a net loss of Rs 296 crore for the period. For Q1 2023, the company reported a small profit of Rs 23 crore. As on June 30, 2022, the company had accumulated losses of Rs 917 crore. Over the near to medium term, the company’s underwriting performance is expected to improve gradually however, it will remain a constraint to the overall profitability. In such a scenario, income from investment will be the key driver for profitability – as in case of most other peers.

 

• Modest albeit gradually improving underwriting performance

GoDigit’s underwriting performance, through stabilising, remains modest. For fiscal 2022, the company reported a combined ratio of 113% as compared to 109% for fiscal 2021. The increase was driven by incremental Covid-19 claims incurred in fiscal 2022 after the second pandemic wave. While the company’s claims ratio is among the lowest in the industry within 70-75%, at par with seasoned general insurers, its expense ratio has remained high at 35-40% since inception due to early phase of operations and high retention philosophy. For fiscal 2022, claims ratio stood at 74% whereas expense ratio was 39%. For Q1 2023, the performance has remained stable evidenced by a claims ratio of 73% and an expense ratio 34%. With sustenance in loss ratios, the company’s expense ratio should decline with economies of scale – resulting in a corresponding improvement in overall combined ratio in the long run.

Liquidity: Strong

Liquidity position of GoDigit remains comfortable supported by adequate investments in government securities and liquid mutual funds. Liquid investments were Rs 6,272 crore as on June 30, 2022 including a cash and bank balance of Rs 132.7 crore. Additionally, the company is expected to receive funding support from its majority shareholder – Fairfax Financial Group in a distress scenario.

Outlook: Stable

CRISIL Ratings believes GoDigit will remain strategically important to, and continue to receive support from, Fairfax on a steady state basis. The company will continue to grow its market presence while maintaining sound risk management systems and prudent investment policies. However, its overall profitability will remain constrained by high underwriting losses. Capitalisation and solvency will remain dependence on regular equity infusion from existing and new investors,

Rating Sensitivity factors

Upward Factors

• Material change in expectation of support from, and/or increase in strategic importance to, Fairfax, supported by relaxation in regulatory ceiling on FDI

• Significant improvement in market share and competitive positioning alongside portfolio diversification
• Material and sustained improvement in overall profitability with the company breaking even and exhibiting a consistent increase in absolute profits

 
Downward Factors

• A downward revision in rating or outlook on the co-promoter – Fairfax, will result in a similar action on GoDigit
• Reduction in strategic importance or stake of Fairfax
• Decline in steady state solvency ratio to below 1.7 times
• Substantial increase in underwriting losses leading to further moderation of earnings profile and adverse impact on its solvency ratio

About the Company

Having started operations in 2017, GoDigit is a new age general insurance company with a market share of 2.1% - offering insurance cover for motor, health, fire, property and liability segments. The company is backed by Mr. Prem Watsa’s Fairfax Financial Group which holds 45% stake in the company through GoDigit Infoworks Services Private Limited, and the balance 55% is held by Mr. Kamesh Goyal. In January 2021, GoDigit became a unicorn with a valuation of USD 1.9 billion. Subsequently, in July 2021 – the company raised USD 200 million from investors at a valuation of USD 3.5 billion. Since inception, the company has issued over 36 million policies and is the fastest general insurer to cross the Rs 5000 crore mark in terms of gross direct premium.

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Key Financial Indicators

As on / for the period ended March 31		2022	2021	2010
Gross direct premium written	Rs. Cr.	4674	2418	1768
Networth	Rs. Cr.	1893	1177	1131
Profit after tax	Rs. Cr.	-296	-123	-175
Combined ratio	%	113%	109%	117%
Solvency margin	Times	2.01	2.01	3.24

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs. Cr)	Complexity Level	Rating Assigned  with Outlook
NA	NA	NA	NA	NA	NA	NA	NA