Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Limited Q2 FY23 earnings conference call hosted by JM Financial. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Bhise from JM Financial. Thank you, and over to you, sir.
Thank you, Faizan. Good morning, everyone, and season's greetings. Welcome to the earnings conference call of Bajaj Finserv Limited for 2Q FY23. First of all, I would like to thank the management for giving us the opportunity to host the call. From the management team of Bajaj Finserv Limited, we have Mr. Sreenivasan, Chief Financial Officer, Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance, Mr. Tarun Chugh, CEO, Bajaj Allianz Life Insurance, Mr. Ramandeep Sahni, CFO, Bajaj Allianz General Insurance, and Mr. Bharat Kalsi, Chief Financial Officer of Bajaj Allianz Life Insurance Company. With that, I would like to hand over the call to Mr. Sreenivasan for his remarks, and then we can open to Q&A. Over to you, sir. Thank you.
Thank you, Sameer. Good morning and Happy Diwali to everybody. I welcome everybody to this conference call to discuss the results of Bajaj Finserv Limited for Q2 of FY23. Before in this call, we will concentrate largely on the consolidated results of BFS along with the results of our insurance operations and our other smaller subsidiaries. Bajaj Finance has already had its call. However, if there are any high-level questions on BFL, we will be glad to take that as well. We'll not be taking any questions on the status of Allianz's stake in our insurance company. The status has remained the same as at the end of the previous quarter. Any statements that may look like forward-looking statements are just estimates, and they don't constitute an assurance or indication of any future performance result.
Just a remark on Ind AS, the consolidated results, as you are aware, are based on the Indian accounting standards or Ind AS. While the insurance companies present their standalone results on the basis of Indian GAAP or the IRDA Financial Statement Regulations. However, for the purpose of consolidation, they give us Ind AS compatible financial statements which are duly reviewed by the auditors. Coming to the performance for Q2 of this year, the macro headwinds were pretty strong in this quarter. They continued, actually, I should say. Inflation continued to be high. The RBI further hiked interest rates. Overall in H1, they hiked rates by about 190 basis points. Inflation remained fairly persistent. The impact on the economy was mixed overall. I think we saw strong increase in auto sales.
Credit growth was strong in the period. However, there were reports of a somewhat sluggish rural economy. Overall, we saw that discretionary spending was pretty strong in this quarter, which was generally helpful for us as a business. The general insurance sector was characterized by intense price competition in the motor segments, while the life insurance sector recorded a muted growth of 5% in the individual rated business. In this environment, we think our companies have continued to do well in line with their chosen strategies. Let me touch upon each of our major businesses. Let me start with Bajaj first. For the quarter, Bajaj reported a degrowth of 5.6% in the headline number of gross domestic premium income, as against industry growth of 9%.
However, as I mentioned before, the tender-driven businesses like co-op and government health are basically for bottom line. Last year in Q2, we had written a very large government account in Gujarat, which we did not renew this year. Therefore, if you exclude the effect of those, the GDPI growth for the quarter was about 12% and for half year it's about 15.6%. Bajaj continues its approach to calibrated growth that is seeking to grow in preferred segments, which are private cars, two-wheelers, commercial lines and retail health along with commercial lines, while remaining cautious, opportunistic on group health. To give some more detail, growth in GDPI was attributable to retail and group health, 9% in retail health, 33% in group health and commercial lines grew very well, 11.4%.
We also saw a revival of the travel business, which started in Q1, but I think the strength was more visible in Q2. Overall in H1 FY23, Bajaj had motor growth of 12%, with two-wheeler segment growing 23%, the CV segment grew 14% and the four-wheeler segment grew 8%. The strong growth in commercial line was aided as you know by Bajaj's very strong bancassurance network and supported by the agency channel. Bajaj has a very strong underwriting approach as well as significant reinsurance capacity for covering large risks. Bajaj continued its strong performance across retail, commercial and industrial risk categories in the commercial lines. Fire and marine segments continued their growth momentum, while engineering liability lines have also shown reasonable growth, continuing their momentum from the previous quarter.
Overall, commercial lines continued to do well, with a growth of 11.4% and 15.3%. 15.3% is for the half year, I should say, as against industry growth of 9% and 12.6%. Health insurance overall performance was better in Q2 as compared to Q1. Overseas medical or travel insurance continued its momentum, while Bajaj's growth in retail health at 8.8% was marginally higher than the market, with the private and PSU players growth of 8.7%. Similarly, in group health, Bajaj maintains a growth of 33% in Q2, versus industry growth of 16.4%. For the industry overall, retail health growth, including standalone, was 17% in Q4 and 14.3% in H1.
On the claims front, experience in Q2 sequentially improved as compared to Q1 on the back of better selection of business and measures taken to control expenses at management. The loss ratio and combined ratio in Q2 improved by 2.4% and 4.8% respectively as compared to Q1 of FY23. For Q2 FY23, the loss ratio stood at 75.5% as against 77.6% in Q2 FY23. In this, we have also taken a provision of INR 34 crore net of reinsurance on the Supreme Court order on Osmanabad Kharif 2020 crop season. This is our best estimate as we stand here now, and we'll be reviewing that as the case progress.
The matter being sub judice and still under discussion with the government, we would not like to comment anymore on this. The combined ratio for Q2 again came back below 100 at 99.8. It was higher than last year of 98.5, but nevertheless below 100. The higher frequency in motor and health, excluding COVID, and impact of inflation on costs are expected to remain over the next couple of quarters at least. BAGIC will monitor these developments closely and endeavor to initiate corrective action as needed. In a market which is intensely price competitive, this is what we believe displays BAGIC's commitment to a balanced and profitable growth on the back of strong underwriting.
The profit after tax was INR 336 crore as against in Q2 FY23 and INR 747 crore in H1 FY23. The AUM grew by 8% and has reached INR 26,500 crore as of 30 September 2022. Apart from the impact of provision for the Osmanabad crop claim, Bajaj also had lower one-time gain of INR 81 crore from the sale of investments in Q2 of FY23. These are of a one-time nature and therefore we think over the subsequent quarters the impact of this will even out. In summary, it was a quarter with strong external headwinds and Bajaj has chosen to hold its own with a good combined ratio and reasonably good profit. Let me move to life insurance next.
Overall, the life insurance industry saw muted growth in Q2 after a strong Q1. During the quarter, while a few private players saw slowdown in their growth as compared to the previous year, Bajaj continued on its month-on-month growth trajectory and reported an industry-leading individual rated premium growth of 32%. This is compared to just 5% of the industry and 7% for private players. Similarly, in H1 of FY23, Bajaj individual rated premium grew 51% as against industry growth of 19% and private players growth of 21%. In fact, in H1 of FY23, Bajaj was the second fastest growing life insurer among the top ten players on individual rated new business basis.
Bajaj's 3-year CAGR of 36% on IRNB basis on H1 FY23 is the highest in the industry. Bajaj maintained its sixth rank while improving its market share of IRNB from 6.2% to 7.7% among private players in H1 FY23. The total number of policies for Bajaj also grew by 17% to 1.35 lakhs in Q2 FY23. In H1, overall growth has been 38% as it ended at about 2.57 lakh policies. On the product front, the Assured Wealth Goal, a non-par savings product, has been well received in the market. It contributed to 16% of Bajaj's product mix in Q2. During the quarter, Bajaj also relaunched its analytics-based term product.
Going forward, it is the intention of Bajaj to slowly increase the share of individual term business, but to the segments that Bajaj feels is reasonable in terms of risk. In terms of product mix, par was 18% in Q2, non-par savings 35%, term 3%, annuity 9%, and unit 35%. I must reiterate here that Bajaj a few years ago had taken a stance of maintaining balance in distribution, balance in product, and balance between growth and profitability. I'm glad to say that the balanced product mix continues to be maintained with the unit-linked being just 35%.
Most of the lines have shown solid growth in absolute terms as well, and the business mix changes reflect difference in growth, and hence are not something that we are concerned about in the short run. During the quarter, growth was driven by all our main channels, agency, institutional business, and Bajaj Direct, the three main arms of distribution, with agency growing at 17%, institutional business at 47%, and Bajaj Direct growing at 30%. Another point I would like to highlight here is the strong YOY increase in persistency across vintages, especially in the later buckets. Like the 49-month persistency increased by 4% to 63%, and the 61st month increased by 5% to 50%.
The increase in persistency helped deliver a strong growth of 21% in terms of renewal premium in Q2. The new business value net of expense overrun, the key metric of profitability, increased by 40% from INR 136 crore in Q2 of FY 2022 to INR 190 crore in Q2 of FY 2023. For the half year, it was INR 325 crore as against INR 161 crore for the six months ended 30th September 2021, with a growth of over 100%. Balanced PAT, profit after tax also grew 53% to INR 159 crore as against INR 104 crore because last year we did have the impact of COVID claims. Overall, a very strong quarter for BALIC.
Finally, both insurance companies are financially among the most solvent, BALIC at 532% and BAGIC with 362%. BAGIC, in particular, has generated capital during the quarter. All our businesses have further augmented their digital capabilities, along with greater digital acceptance by customers should, we hope, help create the foundation to deliver strong performance in second half of FY23. The details of our digital penetration is given in our investor deck, which has been uploaded on our website a few days ago. Both BAGIC and BALIC have seen an increase in the utilization of digital properties by customers and intermediaries. Let me move on to the lending business, BFL and BHFL. BFL has already had its call. However, we only broadly touch upon BFL results.
Both Q2 and the first half of FY23 were excellent for BFL as the company delivered on all its long-term financial guidance metrics, AUM, profit growth, return on assets, return on equity, as well as gross and net NPA. Continuing on the growth story, BFL acquired 26 lakh new customers in Q2, 53 lakh new customers in H1. Building on this customer franchise, the number of new loans booked enabled increase to 67.6 lakh as against 63.3 lakh in Q2 of last year. Its diversified business model has enabled to record a strong AUM growth as seen from the total AUM at INR 218,366 crore as against INR 166,937 crore on 30 September 2021.
BFL on a consolidated basis continues to maintain INR 1,000 crore management overlay against loan losses. Gross and net NPA continue to be well within the target rates, 1.17% gross NPA and 0.44% net NPA. Overall, 88% higher PAT on a consolidated basis by BFL at INR 2,781 crore represents a very strong result for us. The capital adequacy ratio also continues to be strong for BFL at 35.13%. BHFL, the 100% mortgage subsidiary of BFL, continues to do well. AUM grew 42% in Q2. The profit after tax grew 84% to INR 306 crore as against INR 166 crore in Q2 of FY 2022.
The capital adequacy ratio stood at 24.58%, and the gross and net NPA are very low at 0.24% and 0.11% respectively. In summary, a very strong quarter for both BFL and BHFL. Consequently, the BFS consolidated results reflected an all-time high quarterly profit as well. Just to give a small update on our newer companies, we have put up a couple of slides as in Q1 in our investor deck as well. Bajaj Markets or Bajaj Finserv Direct and Bajaj Finserv Health. During Q2 FY23, Bajaj Markets attracted about 80 lakh consumers in its digital platform, of which 2 lakh became customers as against 64 lakh and 1.5 lakh customers in Q1.
Bajaj Markets lending unsecured and secured along with BFL and partnership disbursement for the quarter stood at INR 1,052 crore as against INR 875 crore in Q1 FY23. It sourced 61,974 cards as against 56,246 credit cards in Q1 of FY23, and INR 83 crore of FD as against INR 41 crore in the previous quarter. As of Q2 FY23, Bajaj Finserv Health had cumulatively registered 79 lakh users with monthly active users reaching 6.35 lakh during the quarter. Total base of paying users for EDH stood at 7.95 lakhs, while the total number of transactions reached a high of 7.09 lakhs. Just to summarize the overall results, consolidated total income 16% increase at INR 20,803 crore.
Consolidated profit after tax, 39% increase at INR 1,557 crore. For the half year, consolidated total income up 15% at INR 36,692 crore, and consolidated profit after tax 47% higher at INR 2,866 crore. Under the Ind AS, insurance subsidiaries have chosen to hold a large part of the equity securities portfolio as fair value through profit and loss account. Therefore, the unrealized mark-to-market gains or losses on investments included in consolidated profits were a loss of INR 21 crore in Q2 of FY 2023 versus a gain of INR 105 crore for Q2 of FY 2022. Similar MTM impacts were a loss of INR 304 crore for H1 of FY 2023 versus a gain of INR 130 crore for H1 of FY 2022.
If one were to exclude the volatile impact of MTM losses and gains, the core profit after tax, excluding these, would have increased by 55% and 74% respectively in Q2 and H1 of FY 2023. Overall, a very satisfactory result for BFS in H1. With this, I will now invite questions from the investors. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Yeah. Hi. Thank you. Good morning to everybody and wish all of you a very Shubh Deepavali. When I look at the performance numbers over the period of time, it's very now clear as far as life insurance business is concerned. There is a very solid progress that has been made and, along with the growth, qualitatively important parameters are being attained. It is reassuring to see a solid progress over the period of time in BALIC. In BAGIC, in sync with the control of the risk, and keeping in mind the other parameters, there has been a very measured performance like in sync with the past.
When I look at the various parameters over in which the progress has been attained, and if you have to look at a period of 3-5 years ahead, what are the strategic 3 or 4 priorities for each of the business? Or what are the strategic measurement indicators that the business leaders would like to see for themselves being attained over 3-4 years time? This could be parameters like growth. It could also be a qualitative measurement of the growth like balancing that Srini was earlier mentioning. It could be capital efficiency measurement such as return on capital employed or return on equity in the BAGIC business or return on embedded value in BALIC business.
What are 3, 4 key parameters that the business leaders in both these areas would like to see being attained over next 3-5 years' time?
I would hand over first to Tapan and then Tarun to respond because being a question of strategic nature it's best the CEO answer this. Then I'll give an overview from the FI perspective. Tapan?
Yes. Thank you, Srini, and thank you, Bal brother, for a very good question. See, if you look at our customer size, you know, we would be close to around 14 crores or so now. Which means that if I look at Indian household at about, you know, one, if we divide that by four, we roughly would get about 33-34 odd crores, you know, household. Currently, if you look at, if we divide it, you know, on a very like rudimentary basis, not a very exact parameter, but around one in 3.4 households, we would be present currently as Bajaj Allianz General Insurance Company. One of our ambitions is that can we be present in all households of India, you know. Can we be present in every household of India?
That is a clarity of, you know, thought and vision that we have, for which we are looking at how do we reach out to all Gram Panchayats, you know, how can we, you know. Even now the states, the regulator has given us states like they've given us UP, they've given us, Jammu and Kashmir, Ladakh, you know. All states which have been given to us, can we increase insurance penetration? First point is the increase of insurance penetration, which is very, very clearly, in the top of our mind.
The second, if you look at Bharat Shah is that, we always maintain that, if you do business in a sensible manner, which means that you don't burn capital, but you are able to grow business and acquire our customers, you're able to serve them well, and you're able to be true to what you have committed to customers in terms of delivery to customers, then that's how you build a long-term brand. That we shall do the second point is not let go of our act of seeing that we are able to do good business and serve the customers very well.
Like if you've seen in a track record by the regulators website, you look at the grievance ratio, you will always find that Bajaj Allianz has been the least grievance ratio consistently over, you know, all quarters together. In fact, for close to a decade now, if I may say so. That is something which we'll be obsessed with. The customer service, writing good business and serving the customer very well so that we're able to maintain the least grievance ratio and zero friction. The third point is that we shall be using technology to enhance customer experience to a different level, you know. Insurance should mean for customers a lot of comfort that in times of claims, they need not worry about anything. There should be immediate payment to the customer.
There should not be any hassle, completely friction-free experience for the customer. To answer this question, three points, Bharat Shah, these are three points from my side in which we are very clearly obsessed in taking this home. There are many more points, but since you asked me for three, I said I'll stick on the three. Thank you, Bharat Shah. Over to you, Srini.
Yes. Tarun?
Only you. Tarun Chugh on the line.
Tarun, sir, we can't hear your audio. Please unmute your line from your side.
Am I audible now?
Yeah, you are. Yes.
One great question as always. I'll keep it crisp to the measures straight away. The three critical measures for me are market share of the overall business of the private sector. We're currently at about 7%. We've doubled from where we were earlier, about 4-5 years back. Within this, the highest growth in total NOPs and customers added per year. Usually, there are some customers always going out, so the total accretive NOPs becomes a very critical piece. Another basic piece for us from a risk perspective is diversified distribution and diversified products. I would not like any distributor dependence more than 25%, unlike the large companies who have depended on usually one bank or 1.5 banks.
Even from a product perspective, I wouldn't want any one product to be more than 15%-17% of our business. There could be categories of products which at some point in time could be higher, could be lower, but a product should not be more than 15%-17%. The last is on profitability and ROEV. Now that the EV is going to be showcased to investors regularly, an ROEV measure is something we need to work on and get it better than where we are today, I think becomes very critical. In terms of the most important qualitative aspect would be making it easy, our products and our processes as easy as possible and taking all decisions for the company, assuming there was a customer sitting in the room while we take a decision.
Broadly, these. Yeah. Thank you.
Before we have follow-up question from a capital allocation perspective in BALIC, you know, a few years ago, we had almost 800% solvency, which has now come down to below 600. We have invested quite a lot of that into either value for the customer in terms of entering products with higher business, new business strain or guarantees like non-par savings. They have done exceptionally well for us in terms of profitability. We have also started distributing dividends back to BFS, which we are reinvesting into some of our newer entities. In terms of BALIC's ROE relative to market continues to be very strong. We are still in the 16%-17% range. In a good year, we could even touch 20%.
Our industry as a whole has large underwriting losses and we will continue to be looking at that. They are now generating capital just like BFL. Of course, BFL, as you know, has been generating capital. With the subsidization of the housing finance company, BFL's book has become predominantly short tail. So overall, I think as a group, our capital position has improved significantly. In terms of our startups like the Bajaj Finserv Markets and Bajaj Finserv Health, our first goal is to reach a high level of transactions per customer per month.
I think the first milestone that I can't say the timeframe as of now, but say over the next 3-4 years, if we can touch 2 million transacting customers, it will be a very satisfactory, we can say that we have reached the first level of critical mass. In terms of our mutual fund, we will be launching, hope to launch, with SEBI approval. The final approvals are awaited, hopefully by Q4 of this year, for a set of products. There we would like to play a digital-first mutual fund, not on the ETF, the low income, the very low cost passive side, nor in the highly expense-heavy aggregated side, but somewhere in the middle tier, focusing more on tier 3, tier 2 towns and building a digital-first distribution.
We try to create a differentiated space there. It is a game for us where we get more customers. We will measure it more by the number of customers we acquire because AUM will take some time to develop. Broadly, this is an overview of where we stand in BFS.
Sure. Thank you. Just one question in follow-up to what was mentioned earlier. For example, can we have a little more concrete definition of where we want to be, say, in Bajaj? For example, in terms of the growth parameter, given the large size of opportunity that is before us.
Likely growth rate for, say, the VNB over a period of 3-5 years' time, and the efficiency parameter where likely ambition to touch a return on embedded value at a, well, kind of a some more concrete measurement of where we want to be. Equally important, the risk control has always been at the forefront. When the return on capital employed or return on equity, which is 16%-17% today, can we have a kind of a combination where the growth rates are somewhat muted, it'll be compensated by superior return on equity.
Where return on equity is at a good level, at a healthy level, may not be at an exceptional level, like it's 17%-18%, then whether that can be compensated by a much superior growth rate. In other words, some kind of a trade-off between the two where we get a healthy combination of superior growth at a superior quality and capital efficiency for Bajaj. Can we have some kind of concrete kind of. I know it, in a way it is slightly trying to be presumptuous, but in case if there is any thought on that, I would like to hear that.
Can I take that, Tapan and Tarun first?
Yeah, go ahead.
I think I'll start with basic first. As you know, it's a very volatile industry with catastrophic claims, and, you know, significant court decisions and not a third party and things like that. I think we can only aspirationally give a sort of range we would be. We have never been below 15% for a number of years, so clearly we would like to be at least above 15%-20%. In a good year, we would like to cross 20% and a bad year, possibly closer to, you know, 15, 16%. Having said that, I think the bigger question for you was are we giving up growth to remain at this level. You see in GWP as a measure can be quite misleading in general insurance.
You can write a lot of fronting business or tender-driven business, and the GWP can grow. Really the measure is how we are growing our retail and commercial lines all together along with our corporate lines where we retain reasonably well. We do try to report the numbers excluding the tender-driven business as well. In that sense, I think we would like to grow obviously because I mean general insurance clearly has a straight correlation with the capital formation and the sale of automobiles, which has been a bit weak over the last few years. As they pick up, we would like to grow above the nominal GDP by about 2.5%-5%.
In the case of life, I would put that number closer to between 5% and 10%, given that we have a relatively lower base as compared to the top three companies. Or in terms of NBV growth, we do not place too much importance on margins in life insurance because there are businesses with low margins but offering great potential for high volumes. So net, I think NBV captures both the volume and the margins, and that is where we would like to grow faster than the growth in the top line. Tapan, Tarun, would you like to add something to it?
No, Srini, I think you've summed it up very well from my side.
Tarun?
I think absolutely fine. We've put together everything in one go.
Yeah. Okay.
Thank you.
Thank you. The next question is from the line of Nischint Chawathe from Kotak. Please go ahead.
Yeah. Hi. Good afternoon and happy Diwali. Just two questions from my side and, you know, one was on life. You know, what kind of a growth trajectory do you really see from year on? Obviously went very well in the first half, and I believe there will be some base effect catch up also happening towards the end of the year. The fact that I think some of the banks are kind of focusing a little bit more on deposit gathering year on than, you know, kind of sale of bank insurance products. In the backdrop of all these things, what kind of a, you know, growth trajectory do you really see over the next 12-18 months?
Tarun?
Yeah. You're right. You're very right. Very clearly we had expressed that the growth that we had in the first quarter was overwhelming for the entire sector itself and for BALIC as well because of the COVID impact till about June. Since July, if you see the numbers have started getting to be more reasonable in terms of growth. For us it has been still quite good in terms of growing versus the sector. The base effect, yes, will play out in the second half. The second half last year was quite strong. You should expect that the growth will come to more reasonable levels. As far as BALIC is concerned, we don't make a forward-looking statement.
We don't give forward-looking statements, but you should expect near a double of industry growth rates if you think of the private sector as the industry. I think that is a statement I'd like to maintain currently.
To what extent are you seeing shift of banks towards deposit gathering?
Yeah, it's again a very good point you raised there. It is going to be higher and the fact that interest rates are moving up, banks are going to move towards more FDs. Customers are gonna move towards FD. This is again something we had mentioned very clearly that this is a trend we see, we were expecting in the second half of this year. The interesting bit is that for us, which is why in the earlier response I did very clearly say that we don't want dependency on a product, and more so some product segment for sure.
Given that we are highly diversified in terms of our products, able to maintain a good growth rate by moving from one to the other. In the future, what will win in the market is ability to be able to spot niches both in customer segments and customer needs and that is what is gonna decide winning products and not so strong products.
Sure. The other question is on the digital, you know, term product. You know, so is this launched across digital platforms or is it kind of done selectively and, you know, kind of what gives you know, comfort on, you know, on the fact that you won't be taking the risk of adverse selection?
No, I think that's a brilliant point. I'm happy that you look at the business in so much depth. We've taken a very structured look at our term strategy and last year very clearly we had struggled in this and so had the entire sector. Since then we've taken a few calls. We've kept a core retention on our books and what we very simply told all our partners is that the customers we shall be onboarding will be based on our profile and analytical models. I think we have probably one of the best models in the market. I would believe so. What we've done is we've clearly segmented them into four segments, the kind of customers we'd want.
In the better segments, we've seen a significant shift now. The market itself is giving us that benefit where we are able to give easier processes because we are now getting to give easier processes to customers within a better segment. While if somebody's not in a great segment from a risk perspective, our checks have only just gotten intensified. As a result, we have seen a significant shift now in a positive fashion to term business. You will see more and more of this as we move ahead.
Thanks. Just moving on to the non-life side. You know, if you can comment a little bit on the health side. You know, two questions. One is, A, your growth has picked up quite well, you know, this quarter on the retail side. You know, the other thing is, you know, on the retail claims ratio, I think there seems to be some rise. You know, is that something which is concerning? Is that the inflation on the health side a little worrying? You know, do you really see, you know, on the health side whether you have really been done-
We had mentioned this in the past also. In the COVID time there was a lot of uncertainty. In that time we had slowed down the growth for health. Now with the uncertainty behind us, now I think the environment is more stable. We understand that what the loss ratio would be, you know, what the movement will be. We are picking up health again. I think that is what it was, which I had mentioned also earlier. Because when you're in uncertain times you're not very sure as to, you know, how the loss ratios move or what can go wrong in that. It's better to be cautious. As things settle down, again you start picking up growth. That is why you see that growth happening and you also see the loss ratio come down a bit now.
This is the operator. We'll take the next question from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity, sir. Firstly, on the life insurance, can you share the breakup of operational variance of INR 87 crore that we have witnessed? How much is coming from mortality, persistency and expenses?
I'll take that question. Yeah, I'll take that question. Nidhesh, thank you and happy Diwali first of all. Most of the INR 87 crore operating variance, the number is coming from our mortality experience and that too from the group line of business. In the retail also it is positive because last time we were able to price our group product offering better. That's where it is coming up, a small marginal hit coming from the persistency or the lapses update. There is obviously the actual tax benefit, which is whatever was planned versus actual tax paid. Those are the thing, but 70%-80% is on account of mortality benefit out of this INR 87 crore.
Sure, sure. Secondly, what percentage of business is coming from Axis Bank for us, in this quarter?
The H1 number is around 25% of our business is coming from Axis Bank.
Sure. Thanks, Tarun Chugh. Happy Diwali to you. Secondly, on Bajaj General Insurance, how should we see the competitive intensity in the motor OD segment playing out in coming future? What are our thoughts there?
No, that will remain more intense. In fact, if you look at it, you know, when you have a new player enter the market, I think, they normally go for the motor business because that is easier to acquire and, that is what, all players have done till now, if you look at it from that perspective. If I look at the way regulator is planning things out, he's making regulations pretty easy. He's looking for no more players to come to the market. Rightfully so, because in India we still have very less players no. There should be at least 300, 400 players in the Indian market. Now with that happening, I don't see the pressure on motor easing out in the near future.
Sure, sure. Lastly, on the retail health, what is our strategy, given that, all the multi-line insurance players have struggled in scaling retail health business, how do we plan to scale that business in future? What give us confidence that we will be able to become a meaningful player in that segment?
We are already a meaningful player. I don't think we are a small player. The issue is because we look at growth rate, you know, and that is how we understand how it moves. Now, the statement that multi-line players have struggled is not so. I think the issue is that the health SAHIs companies had the arbitrage of distribution no. They could pick up any agent while the multi-line players had to go through the process of first acquire a fresh agent, train the agent, get examination pass, then build. It takes more time when you have this. That is one reason why the building of distribution takes more time in multi-line compared to a SAHIs company.
If you look at even the SAHIs companies also after certain growth, they also moderate out in terms of growth which would be happening. The first point is that my belief is all companies would focus on these 2, 3 products such as motor, health, you know, and crop. Predominantly in the industry these three products constitute the major chunk of business that would go up to close to 80%-90% business. You can't be out of any business. The strategy, I think in all three businesses we would be a significant player even going forward.
Now, having said that, in terms of retail, as I mentioned in my just previous communication, when the COVID was there and there were uncertain times in terms of how health would be playing out, we had advanced slowly. Now with that behind us and it's more stable to understand how things are moving, we'll also be pushing our health growth going forward, which is there. That would be a strategy which we build there.
Sure. We will be investing in our agency network there. From a distribution point of view, how do we strategize to gain share there?
If you look at our distribution network, we are into all distribution networks. We are the predominant player. If you look at bancassurance, we would be the leading distribution player. Look at agents, we would be one of the leading in terms of our number of agents are there. If you look at the brokers or in terms of web sales. We would be into all distributions. We would use all distributions to acquire the customers the way we'd want to so that we serve them well. I don't think that we try and differentiate or try and push one.
We push all distributions at the same time in terms of getting customers, especially in the lines of business like I mentioned to you, the motor and health because they would be relevant for all distribution networks together.
Sure. That's it from my side. Thank you.
Thank you. The next question is from the line of Avinash Singh from Emkay Global Financial Services. Please go ahead.
Yeah. Hi. Good afternoon. A very happy Diwali. First couple of questions on life insurance. Firstly, if we were to assume that the current exposure draft on expense of management and commissions were to be accepted as it is, what kind of impact do you see on your overall sort of a business? I mean, maybe by line of business or the overall company. I mean, how do you see the impact if this exposure draft is to be adopted as it is? And the second question is, on that, EV investment variance. I would assume a large part of it would have been coming from your own shareholders fund and FM group fund management. Am I right? These are my two questions.
I'll answer the first one. The second was a little not so audible. Do you want to ask the second question again, Avinash?
Yeah. Second question is that, there is a kind of a very material 6% negative impact in forms of investment or economic variances in your embedded value one. I would assume a large part of it would be because of the yield movement. Is it largely concentrated, I mean, on that mark-to-market hit in your own shareholders' fund investment? Or, I mean, if you can just sort of break it up, that investment variance part between shareholder investments and on the policyholder fund, the policyholder impact. Thank you.
Sure. I'll let Bharat answer the second one, and then I'll get to the first one. One of you wanna take the second question.
Thank you, Tarun. If you look at the overall investment variance, out of it, shareholder fund is roughly one-third of it.
Sorry.
Yeah. One third is around the shareholder fund, but the balance is coming from the policyholder fund. This is just a mark to market, which has to happen. It is a cross line, but within that, non-par saving is also 1% of that. ULIP also, because what happens when you do ULIP, the future earnings will also come down to the same fund management.
Yeah. It's counted.
Your base effect has come down, so that also comes into play. These all are the numbers, but shareholder alone is 1/3.
Okay.
Okay.
Thank you.
Coming back to the first one, there's a lot of noise. Thank you. Thank you so much for muting. The question on the exposure draft on the EOM and commissions, I think it's a very welcome move by the authority. It is clearly going to help us in driving insurance penetration, plus price our products more appropriately and it will help in, you know, easing the entire way we kind of do business. This makes life easy for us, so it will only just increase the funnel of business that's coming in. We welcome this, as we've always been focused on NBV, our new business value. That will remain a target for us as well.
In terms of pressures from the market, we will always be focused on the bottom line as well.
Okay. I mean, from the capping perspective, are you sort of currently within those caps? I mean, like, you know that-
Within those caps.
Yes.
Yeah, yeah. We are very well comfortably within the caps.
Okay. Okay. Very clear. Thank you. One quick question on general insurance. I mean, motor only part, of course, you discussed the competitive environment and all, but what is holding in terms of motor TP is concerned because the growth in this quarter seems very, very muted despite sort of, you know, whatever price hike that has come effective from June. That is also coming. It's still, I guess, in this quarter motor TP growth is just like 2% or something. I mean, what sort of development are you whether it's market development or your own strategy that is playing across that motor TP if you can clarify.
If you look at motor OD and TP together. If you look at the older businesses, then the TP growth looks higher. If you look at the newer business, then the TP looks a bit diluted. If you again, when you heard Srini in his opening remarks, the sales of motor vehicles have been better. From that perspective, I think the newer vehicles are more in the books, and that is why if you look at motor TP comes down a bit. The mix of TP and OD would change for two, three reasons. One is commercial vehicles. If you write more, you'll have more TP. Or if you are writing older books you'll have more TP. It's a question of mix.
It's not a question of strategy in which we have no lower that.
Okay. Very good. Thank you.
Thank you. The next question is from the line of Sankethh Godha from Spark Capital. Please go ahead.
Thank you for the opportunity. Sir, my first question is on Bajaj Life. The observation in the quarter is that the annuity business has been flat year-on-year for the quarter. When we look at the annuity business for the other players which have come up with the results, it has been very strong. It seems that we have lost market share to some extent in the annuity business to the largest players. Is it because the larger players have now launched deferred regular premium paying annuity plan, which was largely your domain to start with? To understand competitive dynamics there on that front.
Similar observation is being seen in the group protection business also because our growth at high percentage is little muted, while it has been strong for the other players who have come out with the results. Just wanted to understand whether the pricing dynamics or something which has led to a bit of slower growth compared to the larger players.
No, good questions on this. On the deferred annuity, see we were the market leaders. We're the first one to come up with this. We took a conscious call. We were a little apprehensive on the EOM guidelines coming in, and EOM availabilities on deferred annuity products was not being favorably reflected. We want to be sure. Now that we have surety, we'll be back in the deferred annuity business, where we belong because we were the market leaders in this, and that's why you currently see a degrowth.
It's just a matter of time that we get right back. In the case of group products, the microfinance side which MFI side is a very significant part of our business and Q2 is when this has actually not much grown and there is just about a 5% growth that we saw if I look at quarter-over-quarter.
Yes.
Our partners also haven't really grown much on the banks, at least the portfolios that we are writing. It's a very specific situation at this point in time, and I would not read much into that.
Got it. Last one on Bajaj Life. If you look at the quarter growth, we have grown individual premium at 32%, but if I back calculate Axis Bank should have grown at 74-odd%. Just wanted to understand how sustainable this kind of a trajectory in Axis Bank is possible and maybe a bit broader picture, what is our current market share in Axis. How many people we have deployed and what gives us the confidence that this channel can sustain a decent because it clearly has outgrown other channels for us. Just wanted to understand more detail in Axis Bank as a bank.
No, again, thanks. It's a question I was expecting anyways. Just to be specific, we are 29% of Axis Bank's business. Yes, we've been investing in the relationship now for a couple of years and because of that the base effect is now coming into play. Last year we just got entry into branch banking, and that has of course taken some time to play out last year, but this year it is a full-blown benefit that we are getting. Our share last year was around 16%-19%, depending on the quarter you would see. Now it is on the 20%-29%. That benefit we have received.
Now the point is a very relevant one that it has been one of the predominant base corrections in the entire top line. As a result, there is significant growth that is showing up in the overall top line for the company.
Yes.
Remember I mentioned upfront that we're very committed to not depending on one bank for distribution. Although I'm myself quite excited with the way Axis Bank is now structured for growth. The acquisition on growth on CASA that does bring in more likelihood of growing that business a lot more. I would expect our market share within Axis Bank to remain in this ballpark now and it is our turn to assist the bank in growing the overall pie for itself. I think it's a fantastic franchise. We'll gain as much. Having said that, our dependence will not be on one bank. We've had various partnerships come alive last quarter, DBS Bank, City Union Bank, Tamilnad Mercantile Bank.
Now we have about 22 banks with us and, while these are smaller, our investments in agency and proprietary sales and maximizing our relationships with other banks will also keep in tandem and lead in growth as well.
Got it, sir. A couple of questions on General Insurance. Sir, in General Insurance in motor OD, we have seen a very sharp improvement in the loss ratio from 82% in first quarter to 69%. Honestly, in second quarter we had maybe Bangalore floods and all those things. I mean, against the anticipation it has improved. Just wanted to understand what led to that improvement, whether we have taken a price correction or something which has led to that improvement in the loss ratio in motor OD segment.
The second question with respect to motor again is that we see a two-wheeler growth at 24% year-on-year, which means that we clearly have grown at a rate better than the industry average. Market share gain seems to be happening in the two-wheeler segment. If you can give a little more explanation on what is leading to the market share and how do you see this piece to grow and on the two-wheeler segment as a whole.
Hemant, would you like to take the question on claim ratio? Tapan can answer on
I'll take it. Firstly, happy Diwali to everybody. Sanketh on your question on the OD loss ratios coming down. I think the issue was the aberration of quarter one. If you recall in quarter one call also we had discussed that you know, suddenly we are seeing a lot of OD claims coming up. And we had explained that if you go in the pre-pandemic period the OD loss ratios actually were always on the higher side in quarter one because of the holiday season. This time, you know, because it was the first holiday season after the pandemic we knew that the amount of travel was much higher than anybody else. We saw number of cars being much higher on the road, you know, the air tickets and all going up.
That was the indication of how travel had moved up in the quarter one. That's why I say it was an aberration. I think quarter two is more normalized now, and that's why you're seeing such a big dip from quarter one to quarter two. That's on the OD side. On the two-wheeler side, I think what we mentioned in the past also, that our market share used to be, you know, close to what, 4%. The big handicap there was, our OEM tie-ups with some of the bigger names, you know, likes of TVS and Honda, Hero, actually, not allowing us entry into the OEM program.
We had said that, you know, we were able to break the ice with the likes of Royal Enfield last year, and we had said in quarter one that TVS is on the cards. Happy to say that TVS has also now started on the OEM program. I think the biggest shift has been that, you know, on the OEM tie-ups, we have been able to break the ice with some of the larger brands, and that's why you're seeing, you know, our market share, which used to be close to 4% on the new sales, it's now moved up to closer to 6%. That's largely driving the change.
Got it, sir. Last one on data keeping. Advance premium number if you can tell for the current quarter, that would be useful.
Sorry, I lost you. Can you just repeat the question?
Advance premium number in the balance sheet.
Advance premium was also moved up, given, you know, what I just said. If you recall last year, September, it was closer to INR 1,100 crores. Now it's at INR 1,240 crores.
Okay, sir. Thank you. That's it from my side.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.
Yeah. Couple of questions from my side. For BALIC, you know, in terms of our channel mix, could you talk a bit more about the direct channel? Because, you know, I guess it'll be more urban than rural. You know, the contribution has been around 10%. What's our journey there and, you know, how do we upsell and what are we doing to increase the direct channel mix on the BALIC side?
Right.
Thanks. BALIC, yes, it is, 10% is BALIC direct, as we call it. Largely, your assessment is appropriate that a significant contribution of the BD channel comes in from the top cities. In terms of what this channel does, it basically upsells to our existing customers who are often because they've been, you know, the agents may have not been part of the group in any form now. This has been the core modus operandi of this channel. On upselling to existing customers, the way we are now working on it is sharper data analytics, hence sharper profiling and sharper product pitches. We are also trying to work with affinity groups. We recently set up in the BD channel a defense vertical.
The defense vertical has shown some remnants of positivity in the banking side, particularly a lot of banks have defense-focused businesses. There is a large presence of non-commissioned officers in the defense business. Hence we ourselves have hired a team of about 150 people who are now upselling to these affinity channels. If this experiment works well, we will be expanding further. In addition to this, we are moving to a light spoke model where we are increasing our presence in smaller cities wherever there is good quality data available from our past agency channels.
Yeah. Typically what-
I think overall, I think both our businesses, the B2C channel, it is not our intention that they will replace a distributed business. It is an alternative channel, it is proprietary, and as we grow that within the overall system, we will have better control on the overall distribution, provide better diversification and balance. It is a calibrated approach and it can be in BALIC clearly 10% is a significant number given that for four years we would hardly add anything on BALIC direct. This is again part of our strategy to diversify our distribution mix.
Right. Typically, what would be, you know, the product migration from a customer upsell perspective? It starts with what product and, you know, what's the timeline to, you know, upsell? Because I guess this would be, you know, largely urban-centric, and urban is doing fairly well. I would guess, you know, this should have done better than what I think we've been reporting is.
I'll take that question, Tarun. I think this question is a bit too detailed. Clearly, I think life insurance is a business of savings, and anybody who bought a product from us definitely has future savings as well.
Right.
That is the game we are playing, and we do across all channels.
I think direct has a better control on what they do because of the analytics and the kind of customer segment they are targeting. That will continue. As long as savings in India grows, in life insurance we will always have the opportunity to upsell because the same customer continues saving. I mean, that's the basic principle behind which we are driving this.
Understood. You know, on Bajaj, you know, you did mention about the competitive intensity being high on the motor OD side. You know, when does this settle? Because, you know, capital availability these days doesn't seem to be a concern. How and when does, you know, the OD side at least, you know, we see normalcy returning in terms of pricing, which can, you know, make us take better pricing products or risk reward is more favorable because, you know, if motor doesn't grow, which is a large segment, the overall GDPI could remain muted in the, you know, coming quarters.
I think, one of the ways to look at it is obviously we are not expecting or we are not controlling what others do. If they want to burn capital and sell at a low price.
Right.
Be it. The question is within that, I think we are doing reasonably well. We are getting the type of business that we want, and it's all a question of getting good quality business within the market. If prices continue to crash, there will be less of good quality business available. Which is why if you see our bank insurance is hardly talked about in the GI space. We always face questions on the life space. We have a formidable network of bank insurance growing well. They are growing above industry. It provides us a good mix of non-motor business. Composite GI business is all about diversification across lines, across segments of customers. And that is what we have been driving.
I think our formidable distribution across motor dealers, and agents, through brokers, through bank insurance. I think that will be able to continue to expand that. Over that, I think we will get our fair share of whatever is going on in the market. Some business for some time is not profitable. We will have to be cautious. When it becomes profitable again, we will reenter that market. I think ultimately it's a question of brand, customer service, and balancing your portfolio in a way that you don't lose sight of, you know, what you want to achieve.
Right. Understood. Lastly, on the group health businesses, you know that has been growing. If I look at, you know, first half data, it's grown I think pretty well in the first half. Has there been a price increase for us? What kind of loss ratios, you know, we target on the group health side, which is giving you the comfort for such growth? I think 29% is the H1 growth. What is the range we look at and, you know, what is happening in that segment?
Yes, I'll take it. I think what's happened is, you know, if you recall, if you go a few years back, the loss ratios for this segment have been on the higher side. As we had indicated at that point of time, we said that we will exit these businesses, except to the extent that it made commercial sense for us. In the past few years pre the pandemic, we had actually regrown these businesses because, like everybody else in the market, this segment was bleeding. I think there have been two changes post the pandemic. One is obviously the repricing, given, you know, what happened during the pandemic for obvious reasons. There was a significant amount of repricing. The second piece was also the coverages have changed significantly.
You know, most of the people realized that the coverages were not sufficient because, you know, the kind of money which got paid out, on the health piece, to the employees was far lesser than, you know, what the requirement was. You know, there has been a significant amount of change in the coverage. Both of these have led to a growth in this segment. On your point on loss ratios, like we said earlier, we said we will write businesses to the extent they make commercial sense. So I'll just confirm that, you know, the combined ratios for this line of business has been sub 100%, and we are happy to grow this business because that reason.
Just to add to that, I think we are neither aggressive nor conservative on this. These are corporate deals, and we pick up if the economic terms that we quote, we get the business. Within that we are able to grow the business because of the strength of our service, because it's a very service-intensive business as well.
Right.
Because it's an employer employee business. Decisions are taken by HR departments of companies as well. I think we are quite happy to be where we are. These are bargaining strength with the hospitals, because of the volume. I think overall strategically it makes good sense for us. Tactically the growth rates may vary depending on the deals you get and the deals you want to write. This is where our underwriting strength really comes to the fore.
Understood. That's helpful. Thank you.
Thank you. The next question is from the line of Bhuvnesh Garg from Investec Capital. Please go ahead.
Hello, sir. Thank you for the opportunity. My questions are on usage-based health and motor products. Like, how do you view these products in terms of customer demand, growth potential and profitability? Secondly, what is our strategy in these products? Any pipeline of launching these products? And thirdly, what kind of tech core partnerships we are developing to operate these products? These are my three.
Kamal?
Sorry, I didn't understand. Which product did you mention?
UBI, recently launched. How do you drive or those motor products and help with it?
Okay. Understood. Yeah. I think for us these products are in the pipeline. We should launch them very soon. I think if you look at it from a customer perspective, it's a great thing to happen because, you know, it. There are two types of products, right? One is pay per use and the other one is taking the gamut of products under one umbrella. If you have multiple cars, clubbing all of them together and taking one policy. I think the latter one is where we will see a good amount of traction with it because it adds to a lot of convenience from a customer's perspective on one side, plus obviously from an insurer's perspective also, you know, it will lead to giving a better pricing for the customer.
I think it'll be a win-win for both. Now that's how we are looking at it. Now obviously proof of the pudding is to be seen only once the product is launched. We are pretty bullish on it from a customer and a company perspective because once you start aggregating we'll have one view of the customer's portfolio also, at least on the motor front. We're also working at some you know structuring to see if we can do the same across the product lines, not only in the few motor cars of the customer, but the entire portfolio. I think it's at a very early stage now. Maybe in a quarter or two you will start seeing the outcomes of these.
Just to add to that, I think globally also I think pay per use is not something new, but there will be an additional option to the customer for those who feel they need it. But there is no evidence to show that the core indemnity products of motor, health, home have been replaced by, so it's the product which you take when you want kind of thing. These are good for customer acquisition. They may add occasionally to the bottom line as well, but the long-term journey of insurance is always with the long-term indemnity products.
Just to add, you know, this pay per use was something which we also did as a pilot in the past. While some traction was there, but nothing meaningful. That's why, you know, I said that the latter will be where we will see more traction. Pay per use, like Srini said, you know, globally also it's there as a good to have, not so much traction seen globally.
Sure, sir. Thank you.
This is the operator. Mr. Garg, does that answer your question?
Yes, yes, answered. Thank you very much.
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Anuj Narula for closing comments.
Thank you. On behalf of JM Financial, I would like to thank Srini, sir, the senior management team of the Insurance Businesses and all participants who have joined us on the call today. Thank you, and have a good day.
Thank you. Have a good day, everyone. Thank you.
Thank you.
Thank you. Ladies and gentlemen, on behalf of JM Financial, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.