Detailed Rationale

CRISIL Ratings has revised its rating outlook on the corporate credit rating (CCR) of Go Digit General Insurance Limited (GoDigit) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL A+’.

 

The revision in outlook reflects the expectation of gradual improvement in the company’s underwriting performance, with sustenance in capitalisation and solvency position, while its operations continue to scale. The outlook change is also driven by a rating upgrade by S&P Global Ratings on the debt facilities of GoDigit’s ultimate co-promoter– Fairfax Financial Holdings Ltd. (Fairfax) to ‘BBB+/Positive’ from ‘BBB/Watch Positive’.

 

Despite the limited history of operations, the company’s underwriting performance has remained at par with established peers - denoted by a combined ratio of 109% for fiscal 2024 as compared to 107% for fiscal 2023. This trend has been supported by a range bound claims ratio of 71% (3-year average) which remains at par with established peers and, gradually improving, though elevated, expense ratio of 39% (3-year average). For Q1 2025, the company reported a further lower claims ratio of 70% with an expense ratio of 35%, aggregating to a combined ratio of 105% - which is among the lowest in the sector. Over the medium term, the company’s underwriting performance is expected to exhibit sequential improvement, while remaining comparable with seasoned insurers.

 

In May 2024, the company completed its initial public offer (IPO) and its equity shares were listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). As proceeds from this IPO, Rs 1,125 crore was raised as a fresh issue. Following this equity influx, the company’s reported solvency ratio improved to 2.17 times as of June 30, 2024 – indicating adequate capitalization.

 

The rating factors in the strategic importance of GoDigit to, and expectation of continued financial support from its ultimate co-promoter- Fairfax, both on an ongoing basis and in the event of distress. As the company’s key stakeholder, Fairfax has demonstrated need-based capital support to GoDigit. As on June 30, 2024, Go Digit Infoworks Services Pvt Ltd (GDISPL), a joint venture between Fairfax and Mr Kamesh Goyal, held 73.6% stake in GoDigit while the balance was held by financial institutions, foreign portfolio investors, alternate investment funds and individual investors. At GDISPL level, Fairfax (through FAL Corporation) and Mr. Kamesh Goyal (along with his entity – Oben Ventures LLP) held 33.3% and 40.3% equity stake, respectively as on June 30, 2024.

 

Insurance regulations currently specify a ceiling of 74% on foreign shareholding which applies to Fairfax and a few other existing investors of GoDigit. Thus, Fairfax can increase its stake up to ~71.5% in GoDigit (direct or/and indirect) 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 growing market presence of GoDigit, adequate risk management systems and practices, and adequate capital position backed by regular capital infusion from investors. These strengths are partially offset by underwriting losses constraining the overall profitability of the company.

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 (Fairfax) 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 strategic guidance 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 limited. As on June 30, 2024, GDISPL, a joint venture between Fairfax and Mr Kamesh Goyal, holds 73.6% stake in GoDigit while the balance is held by financial institutions, foreign portfolio investors, alternate investment funds and individual investors.. There is one representative director from Fairfax on the board of GDISPL and GoDigit.

 

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 in GoDigit (directly or/and indirectly) 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. This stance of support was substantiated through Fairfax’ subscription to Rs 350 crore of subordinated debt issued by GoDigit in fiscal 2024, though the former’s subsidiary.

 

Over the near to medium term, Fairfax is expected to retain a sizable stake (directly and/or indirectly) in the company and remain a critical shareholder with representatives on the board and strategic 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 led by high degree of digitization in business model; portfolio diversity remains an area of improvement: Over seven years of its operational history, GoDigit has attained a market share of 2.7% based on gross direct premium in fiscal 2024 – clocking a 3-year CAGR of 49%. Based on gross direct premiums written in Q1FY25, the market share of the company further increased to 3.2%. Based on gross premium written for fiscal 2024 and Q1 2025, the company’s market share was 3.1% and 3.6%, respectively. The company’s business model is based on leveraging the digital infrastructure to provide a faster and more seamless insurance service to the customers. This enables faster sourcing, underwriting and delivery – thereby controlling the overall turnaround time.

 

During fiscal 2024, gross direct premiums written by GoDigit amounted to Rs 7,941 crore, higher by 29% in comparison to Rs 6,160 crore in fiscal 2023. This growth was led by segments like health & personal accidents, motor and fire which grew at 77%, 37%, 17%, respectively over the period. In Q1FY2025, gross direct premium was Rs 2,338 crores (Rs 1,989 crores in Q1FY2024). In terms of portfolio concentration, motor insurance remains the largest segment for GoDigit - accounting for 69% of the gross direct premium written during fiscal 2024 (64% for fiscal 2023) followed by health & personal accident insurance which constituted 20% (15% for fiscal 2023) of the total premium base.

 

Over the medium term, the company’s healthy growth rate is expected to sustain alongside gradual diversification into fire and health segments though motor would remain dominant in the company’s premium base.
 

• Sound investment portfolio supported by stringent regulations with adequate systems and processes: GoDigit had an investment book of Rs 15,408 crore as on March 31, 2024, and Rs 17,563 crore as on June 30, 2024. G-Secs formed 41% and 56% of the total book as on June 30 and March 31, 2024, respectively. The company has about 29% investments in corporate debt/ bonds and investments in infrastructure which comprise 99% rated AA and above or are sovereign. Since inception, there has not been a single NPA in the portfolio. Investments in equity (excluding investments in Additional Tier 1 bonds) have increased from 1.2% as on March 31, 2023, to 1.6%, a year later, driven by the company’s strategy to maximize returns. Nonetheless, with majority of the portfolio being deployed in fixed income avenues, particularly G-Secs, the company’s investment philosophy remains prudent.

 

In terms of operations, the company continues to streamline its underwriting process with the objective to significantly reduce the time deployed in all processes relating to customer on-boarding, policy issuance, claim assessment and settlement of small ticket claims. 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 of its premiums are contributed by customers residing in these locations.

 

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. This is particularly applicable for small ticket claims and the company endeavours to settle most of these at the earliest. For larger ticket exposures in segments like fire and property, physical verification is done.

 

Aided by these processes and underwriting mechanisms, the company’s claims ratio - at 70% for fiscal 2024 and for the first quarter of fiscal 2025 - remains at par with that for established players.

 

• Adequate capital position supported by frequent capital infusions: Capitalisation remains adequate in relation to the company’s scale and nature of operations. Apart from its track record of frequently raising capital from existing and new investors, the company’s capital position has been recently strengthened by its public listing through which – it raised Rs 1,125 crore of capital in Q1 2025. Resultantly, its networth (excluding third party ESOPs) and solvency ratio improved to Rs 3,698 crore and 2.17 times, respectively, on June 30, 2024, from Rs 2,515 crore and 1.61 times, respectively, on March 31, 2024.

 

Being in its growth phase thus far, the company has primarily funded its networth through external capital from investors and has cumulatively raised Rs 4,368 crore as equity since inception. However, it turned profitable in fiscal 2023 and here onwards, is expected to sustain its capital position through internal accretions.

 

While the presence of high-pedigree investors like Fairfax Financial Group, would continue to be a strength, the company’s ability to improve its profitability and sustain its networth through internal accruals remains critical and a key rating sensitivity factor.

 

Weakness:

• Earnings profile constrained by underwriting losses: Given the company has been in its growth phase, it was reporting losses until fiscal 2022 post which, it turned profitable on the back of lower underwriting deficit and higher investment income.

 

For fiscal 2024, the company reported a combined ratio of 109% as compared to 107% for fiscal 2023. While its claims ratio is at par with seasoned general insurers within the range of 65-75%, its expense ratio remains high at 35-40% - owing to its growth phase and high share of retail business and high retention philosophy. The underwriting deficit for fiscal 2024 was Rs 862 crore (Rs 683 crore for fiscal 2023) which, after adjusting for an investment income of Rs 1,051 crore (Rs 722 crore for fiscal 2023) for the period, yielded a net profit of Rs 182 crore (Rs 36 crore for fiscal 2023) for the period. For Q1 2025, the company incurred underwriting losses of Rs 170 crore. However, this was offset by an investment income of Rs 281 crore which resulted in a reported profit of Rs 101 crore.

 

Over the near to medium term, the company’s underwriting performance is expected to improve gradually, however, it will remain a constraint on the overall profitability. In such a scenario, income from investment will be the key driver for profitability – as in the case of most other peers.

Liquidity: Strong

Liquidity profile should remain comfortable, supported by adequate investments in government securities (G-Secs) and liquid mutual funds. Investments in G-Secs were Rs 7,161 crore as on June 30, 2024, and cash and bank balance was Rs 210 crore.

Outlook: Positive

CRISIL Ratings believes GoDigit will remain strategically important to, and continue to receive support from, Fairfax on a steady state basis. The company’s underwriting performance shall improve gradually in the long run as it scales its portfolio, while its capitalisation and solvency  position remain adeqaute.

Rating sensitivity factors

Upward factors:

• An upward revision in rating or outlook on the co-promoter – Fairfax, or/and increase in the latter’s strategic importance to Fairfax, denoted by significant increase in stake of the latter in GoDigit.
• Significant improvement in market share and competitive positioning alongside portfolio diversification.
• Material and sustained improvement of underwriting performance reflected in combined ratio reducing to and remaining below 105% on a sustained basis.

 

Downward factors:

• Material change in expectation of support from, and/or reduction in strategic importance to, 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 2.7% - 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 33.3% stake in the company through GoDigit Infoworks Services Private Limited, and 40.3% is held by Mr. Kamesh Goyal and Oben ventures.

 

In May 2024, the company has completed its initial public offer (IPO) and accordingly the company’s equity shares are listed on National stock exchange (NSE) and Bombay stock exchange (BSE) on 23 May 2024.

Any other information: Not Applicable